Operations

Operations

Operations Update

2014 First Quarter Update

On the back of the successful exploration activities in Kenya during 2013, the Company and its partners ramped up its exploration program in Kenya and Ethiopia. Entering the year, the Company and its partners had seven drilling rigs operating in the region. Four Tullow-Africa Oil joint venture rigs are operating in the discovered basin in Northern Kenya in Blocks 10BB and 13T, one of which is a testing and completions unit. In addition, the Company and its partners have a rig operating in Block 9 in Kenya. In Ethiopia, the Company and its partners in the South Omo Block and Block 7/8 have a rig operating in each block. Drilling operations in Block 7/8 have recently been completed, and the rig is in the process of being released. The Company expects to have six drilling rigs operating in the region through the remainder of 2014.

In January, the Company announced further drilling success with its sixth and seventh consecutive discoveries in the discovered basin in Northern Kenya at Amosing-1 and Ewoi-1. Amosing-1 is located seven kilometers southwest of the Ngamia-1 discovery along the Basin Bounding Fault Play in Block 10BB. Logs indicated 160 to 200 meters of potential net oil pay in good quality sandstone reservoirs. Well testing and an appraisal well are planned for the first half of 2014. Ewoi-1 is located four kilometers to the east of the Etuko-1 discovery in the Basin Flank Play on the eastern side of the discovered basin in Northern Kenya also in Block 10BB. Logs indicated potential net pay of 20 to 80 meters to be confirmed by well testing which is planned for the first half of 2014.

In February, the Company announced the results of five well tests conducted on five Lokhone pay intervals at Etuko-1 located on the Basin Flank Play in Block 10BB. Light 36 degree API waxy crude oil was successfully flowed from three zones at a combined average rate of over 550 barrels of oil equivalent per day. In March, the Company announced the results of the Etuko-2 exploration well drilled to test the upper Auwerwer sands overlying the previously announced Etuko discovery. Etuko-2 penetrated a potential significant oil column identified from formation pressure data and oil shows while drilling and in core, with good quality reservoir but flowed only water on drill stem test. The results are considered inconclusive and analysis is underway to consider further options to evaluate this reservoir.

In March, the Company announced the results of the Emong-1 well located four kilometers northwest of Ngamia-1 field discovery in Block 13T (Kenya). The well encountered oil and gas shows while drilling, however the Auwerwer sandstones that are the primary reservoirs in the Ngamia field were thin and poorly developed in Emong-1 and the well was plugged and abandoned. It is believed that the reservoir was poorly developed due to its proximity to the basin bounding fault and its location within what appears to be a local isolated slumped fault margin. This well, which was trying to establish an additional play, has no impact on the potential of the Ngamia oil accumulation or any other prospectivity in the discovered basin in Northern Kenya.

Also in March, the Company announced the results of a well test on the Ekales-1 discovery drilled in 2013 and located on the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Testing operations on the Ekales-1 well confirmed this significant oil discovery. Two drill stem tests were completed and flowed at a combined rate of over 1,000 bopd from a combined 41 meter net pay interval. The upper zone had a very high productivity index of 4.3 stb/d/psi.

In May, the Company and its partner drilled a new prospect in the discovered basin in Northern Kenya, the Ekunyuk-1 well, which is located on the eastern flank play on trend with recent discoveries at Etuko and Ewoi. The well has now reached a final total depth of 1,802 meters and has encountered some 5 meters of net oil pay, within approximately 150 meters of reservoir quality water-bearing sandstone and an equal thickness of a basin-wide rich oil shale.

Four rigs are currently operating in the discovered basin in Northern Kenya. The rig that recently completed drilling Ekunyuk-1 is mobilizing to drill Agete-2. Appraisal wells at Ngamia-2 and Twiga South-2 and testing operations at the Agete-1 discovery made in 2013 are also ongoing.

The initial wellbore at Twiga-2 was drilled near the basin bounding fault and encountered some 18 meters of net oil pay within alluvial fan facies, with limited reservoir quality. A decision was made to sidetrack the well away from the fault to explore north of Twiga-1 and some 62 meters of vertical net oil pay has been discovered in the Auwerwer formation, similar in quality to the initial Twiga-1 discovery. The well is currently being deepened to evaluate the Lower Lokhone sand reservoirs and a testing program for this successful well is planned to be conducted later this year.

Given the significant volumes discovered and the extensive exploration and appraisal program planned to fully assess the upside potential of the basin, the Tullow-Africa Oil joint venture has agreed with the Government of Kenya to commence development studies. In addition, the partnership is involved in a comprehensive pre-FEED study of the export pipeline. The current ambition of the Government of Kenya and the joint venture partnership is to reach project sanction for development, including an export pipeline, by the end of 2015 or early 2016. The Government is already making progress, having recently announced its intention to invite Expressions of Interest for the feasibility study, engineering design and development of a Kenya crude export pipeline. If further exploration success opens additional basins there will be scope for the development to be expanded.

In addition to further exploration and appraisal drilling in the discovered basin in Northern Kenya, the Company and its partners plan to drill new basin opening wells in 2014 in the Anza (Block9), Chew Bahir (South Omo), South Kerio (Block 10BB), North Kerio (Block 10BB/10BA) and West Turkana (Block 10BA) basins.

In Block 9 (Kenya), the Company, as operator, and its partner are currently drilling the Sala-1 exploration well which will test a large prospect on the northeastern flank of the Cretaceous Anza rift, which is up-dip of two wells that had significant hydrocarbon shows. Results from Sala-1 are expected in June.

In the South Omo Block (Ethiopia), the Company and its partner are currently drilling the Shimela-1 exploration well to test a new basin in the Tertiary trend, the Chew Bahir Basin, located on the eastern side of the South Omo Block. Results from Shimela-1 are expected near the end of May. The rig will next drill the Gardim prospect in the southern portion of the Chew Bahir Basin. Both wells are basin bounding fault prospects similar to the Ngamia, Amosing, Twiga, Ekales, and Agete discoveries in the discovered basin in Northern Kenya.

Additionally in Ethiopia, the Company and its partners have recently completed the drilling of the El Kuran-3 appraisal well on Block 8. El Kuran-3 was an appraisal of a discovery made by Tenneco in the 1970's, and encountered a significant but tight gas-condensate zone in Jurassic Hammanlei carbonates. The well has been suspended pending a decision on conducting a fracture stimulation, which will be required to assess the long-term productivity of the formation. Discussions are ongoing with the Government of Ethiopia to secure an extension to the Exploration Period under the PSC to assess the economic viability of the discovery.

The Company and its partners continue to actively acquire and process seismic data in Blocks 12A, 10BA, 10BB and 13T in Kenya. In Block 12A, a 425 kilometer 2D seismic program was completed in the first quarter and the crew has recently demobilized. In Block 10BB, a 676 kilometer North Kerio Basin 2D seismic program was completed in the first quarter and the crew is mobilizing to acquire a 600 kilometer 2D program split between Blocks 10BA, 10BB and 13T over the North Lokichar Basin. In Blocks 10BB and 13T, acquisition of a 550 square kilometer 3D seismic program over the discoveries and prospects along the Basin Bounding Fault Play in the discovered basin in Northern Kenya is ongoing and is scheduled to complete at the end of the third quarter. In Ethiopia, the Company, as operator, and its partner are making preparations to acquire a minimum 400 kilometer 2D seismic program over the Rift Basin Area commencing in the fourth quarter. Also in Ethiopia, the Company and its partners have commenced a 1,000 kilometer 2D seismic program on the Adigala Block.

In September 2013, the Company announced details of an independent assessment of the Company's contingent and prospective resources on its Kenyan and Ethiopian exploration properties. The Company is currently working with its independent resource evaluator and expects to release an update to the contingent and prospective resources for the discovered basin in Northern Kenya in Blocks 10BB and 13T during June.

The Company has a significant exploration and appraisal program set out for 2014 which will see over 20 wells completed. The program is focused on drilling out the remaining prospect inventory in the discovered basin in Northern Kenya, appraising existing and future discoveries with the aid of the new 3D Seismic survey, drilling six new basin opening wells and progressing the development studies towards project sanction in the discovered basin in Northern Kenya. This significant exploration program in 2014 is fully funded.

KENYA

The Company and its partners in the Kenyan blocks are actively exploring for oil as described below.

Block 10BB

On the back of the very successful exploration results in the discovered basin in Northern Kenya, the Company and its partner have accelerated the pace of exploration along the Basin Bounding Fault Play in Block 10BB and Block 13T. The Company and its partner currently have four drilling rigs operating in the discovered basin in Northern Kenya, one of which is currently being utilized as a testing and completion rig.

In January, the Company announced further drilling success with its sixth and seventh consecutive discoveries in the discovered basin in Northern Kenya at Amosing-1 and Ewoi-1. Amosing-1 is located seven kilometers southwest of the Ngamia-1 discovery along the Basin Bounding Fault Play in Block 10BB. Logs indicated 160 to 200 meters of potential net oil pay in good quality sandstone reservoirs. Well testing and an appraisal well are planned for the first half of 2014. Ewoi-1 is located four kilometers to the east of the Etuko-1 discovery in the Basin Flank Play on the eastern side of the discovered basin in Northern Kenya also in Block 10BB. Logs indicated potential net pay of 20 to 80 meters to be confirmed by well testing which is planned for the first half of 2014.

In February, the Company announced the results of five well tests conducted on five Lokhone pay intervals in Etuko-1 located on the Basin Flank Play in Block 10BB. Light 36 degree API waxy crude oil was successfully flowed from three zones at a combined average rate of over 550 barrels of oil equivalent per day. In March, the Company announced the results of the Etuko-2 exploration well drilled to test the upper Auwerwer sands overlying the previously announced Etuko discovery. Etuko-2 penetrated a potential significant oil column identified from formation pressure data and oil shows while drilling and in core, with good quality reservoir but flowed only water on drill stem test. The results are considered inconclusive and analysis is underway to consider further options to evaluate this reservoir.

In May, the Ekunyuk-1 well, located south of the Ewoi and Etuko discoveries on the eastern Basin Flank Play, reached a final total depth of 1,802 meters and has encountered some 5 meters of net oil pay, within approximately 150 meters of reservoir quality water-bearing sandstone and an equal thickness of a basin-wide rich oil shale.

An appraisal well is currently drilling at Ngamia-2. Results are expected by the end of the second quarter.

The 2D seismic crew operating in Block 10BB completed 676 kilometers of 2D seismic during the quarter. Fast-track processing of this newly acquired survey is being integrated into subsurface mapping to finalize exploration drilling locations for the 2014 campaign, the first of which will be the basin opening test of the Dyepa prospect in the South Kerio Basin which is expected to spud mid-2014. This 2D seismic program identified a significant number of follow-on prospects should Dyepa be successful. The seismic crew is now mobilizing to the North Lokichar Basin for an infill program that will further define prospects for the 2015 drilling campaign. Using a second crew, the Company and its partner have completed approximately 25% of a 550 square kilometer 3D seismic survey that covers the Amosing, Ngamia, Ekales, Twiga South and Agete discoveries along the Basin Bounding Fault Play in Block 10BB and Block 13T combined.

The current exploration phase under the Block 10BB PSC, which expires in July 2014, includes a commitment to drill one exploratory well and acquire 300 square kilometers of 3D seismic. The planned work program in Block 10BB will exceed the PSC commitment. The intention of the Block 10BB partners is to enter the final two year exploration period under the PSC.

Block 13T

In March, the Company announced the results of the Emong-1 well located four kilometers northwest of Ngamia-1 field discovery in Block 13T (Kenya). The well encountered oil and gas shows while drilling, however the Auwerwer sandstones that are the primary reservoirs in the Ngamia field were thin and poorly developed in Emong-1 and the well was plugged and abandoned. It is believed that the reservoir was poorly developed due to its proximity to the basin bounding fault and its location within what appears to be a local isolated slumped fault margin. This well, which was trying to establish an additional play, has no impact on the potential of the Ngamia oil accumulation or any other prospectivity in the discovered basin in Northern Kenya.

Also in March, the Company announced the results of a well test on the Ekales-1 discovery drilled in 2013 and located on the Basin Bounding Fault Play between the Ngamia-1 and Twiga South-1 discoveries. Testing operations on the Ekales-1 well confirmed this significant oil discovery. Two drill stem tests were completed and flowed at a combined rate of over 1,000 bopd from a combined 41 meter net pay interval. The upper zone had a very high productivity index of 4.3 stb/d/psi.

An appraisal well is currently drilling at Twiga South-2. The initial wellbore was drilled near the basin bounding fault and encountered some 18 meters of net oil pay within alluvial fan facies, with limited reservoir quality. A decision was made to sidetrack the well away from the fault to explore north of Twiga-1 and some 62 meters of vertical net oil pay has been discovered in the Auwerwer formation, similar in quality to the initial Twiga-1 discovery. The well is currently being deepened to evaluate the Lower Lokhone sand reservoirs and a testing program for this successful well is planned to be conducted later this year.

Testing operations at the Agete-1 discovery made in 2013 are also ongoing. Results are expected by the end of May.

The Company and its partner have completed approximately 25% of the 550 square kilometer 3D seismic survey that covers the discoveries and prospects along the Basin Bounding Fault Play in Block 10BB and Block 13T combined. Using a second crew, the plan is to acquire an additional 200 kilometers of 2D seismic over the block during 2014 to define prospects in the North Lokichar Basin.

The current exploration phase under the Block 13T PSC, which expires in September 2014, includes a commitment to drill one exploratory well, which was satisfied with the drilling of Twiga South-1, and a commitment to acquire 200 square kilometers of 3D seismic. The planned work program in Block 13T will exceed the PSC commitment. The intention of the Block 13T partners is to enter the final two year exploration period under the PSC.

Block 10BA

During the first quarter, the Company and its partner on Block 10BA demobilized a seismic crew that completed a 1,450 kilometer 2D seismic program in 2012/2013. The plan in 2014 is to acquire a further 200 kilometers of 2D seismic in the North Lokichar Basin that extends onto Block 10BA. Preparations are underway to drill two exploration wells in the West Turkana Basin commencing with the Engomo (previously referred to as Kiboko) prospect later this year. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 10BA PSC which expired in April 2014. The Company and its partner have notified the Ministry of Energy for the Republic of Kenya of their intention to enter the next two year exploration period under the PSC.

Block 12A

The Company and its partners on Block 12A have recently completed a 425 kilometer 2D seismic acquisition program that began in 2013. The 2D seismic program is mainly focused in the Kerio Valley in the southwestern portion of the block. The 2D seismic acquired to date exceeds the work obligations of the initial exploration period under the Block 12A PSC which expires in September 2014.

Block 9

Block 9 is in the Cretaceous rift basin on trend with the South Sudan oil fields. The Company and its partner are currently drilling the Sala-1 well which has a planned total depth of 3,450 meters and is expected to complete in June. The Sala prospect is a large three way dip closed structure against the rift bounding fault in the Cretaceous Anza Basin in a similar structural setting to the Tertiary Ngamia-1 discovery in Block 10BB. The Sala prospect is up-dip of the Bogal-1 and Ndovu-1 wells both of which encountered significant hydrocarbon shows. The Company and its partner are currently in the final exploration period under the PSC which expires in December 2015. Drilling of the Sala-1 well will fulfill the remaining work commitments in Block 9.

ETHIOPIA

South Omo Block

The Company and its partners are currently drilling the Shimela-1 exploration well to test a new basin in the Tertiary trend, the Chew Bahir Basin, located on the eastern side of the South Omo Block. Results from Shimela-1 are expected near the end of May. The rig will next drill the Gardim prospect in the southern portion of the Chew Bahir Basin. Both wells are basin bounding fault prospects similar to the Ngamia, Amosing, Twiga, Ekales, and Agete discoveries in the discovered basin in Northern Kenya. The current exploration period under the PSC expires in January 2015 and the work completed on the block to date has exceeded the minimum work obligation.

Rift Basin Area

The Rift Basin Area is located north of the South Omo Block and is on trend with highly prospective blocks in the Tertiary rift valley including the South Omo Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A. The Company completed the acquisition of a 36,500 line kilometer Full Tensor Gradiometry ("FTG") survey in October 2013. The Company has completed an exhaustive environmental and social impact assessment over the block in preparation for a 400 to 1,200 kilometer 2D seismic program, which is expected to commence in the fourth quarter. The initial exploration period, which expires in February 2016, will be met by the planned work program.

Ogaden Blocks 7/8

The Company and its partners continue to focus on the El Kuran oil accumulation on Block 8, discovered in the early 1970's. After completing reservoir characterization studies, the Company and its partners focused efforts on testing and completion strategies for producing commercial quantities of oil and gas. The Company and its partners have recently completed the drilling of the El Kuran-3 appraisal well, which encountered a significant but tight gas-condensate zone in Jurassic Hammanlei carbonates. The well has been suspended pending a decision on conducting a fracture stimulation, which will be required to assess the long-term productivity of the formation. Discussions are ongoing with the Government of Ethiopia to secure an extension to the initial exploration period under the PSC to assess the economic viability of the discovery.

Adigala Block

As part of work obligations for the second exploration period which expired July 2013, the Company and its partners incorporated newly acquired FTG data with seismic data to improve the subsurface interpretation of the block. The Company and its partners also integrated results of recent surface geological studies and reprocessed data acquired in 2009 with the goal of improving the data quality. The parties to the block agreed to enter the final exploration period under the PSC, which expires in July 2015 and carries a 500 kilometer 2D seismic work commitment. The Company and its partners have committed to a 1,000 kilometer 2D seismic program which is underway. The Company has farmed down its interest in the Adigala Block to 10%.

PUNTLAND (SOMALIA)

Dharoor Valley and Nugaal Valley Blocks

The Company and its partners continue to evaluate the encouraging results of the two wells drilled in 2012 on the Dharoor Valley block which proved all the critical elements exist for oil accumulations, namely a working petroleum system, good quality reservoirs and thick seal rocks. Based on these encouraging results, the Company, through its ownership interest in Horn, and its partners committed to enter the next exploration period, which carries a commitment to drill one exploration well in each block within an additional three year term ending October 2015.

Efforts are now focused on making preparations for a seismic acquisition campaign in the Dharoor Valley area which will include a regional seismic reconnaissance grid in the previously unexplored eastern portion of the basin as well as prospect specific seismic to delineate a drilling candidate in the western portion of the basin where an active petroleum system was confirmed by the drilling at the Shabeel-1 and Shabeel North-1 locations in 2012. The Company and its partners continue to pursue efforts to drill an exploration well in the Nugaal Valley block and are working with the Puntland government to move this project forward. During the quarter, the Company and its partners completed an on the ground review of the operating environment which is encouraging regarding community support to conduct work.

Somalia is going through an unprecedented period in its history with a real opportunity for all stakeholders to assist in the rebuilding of the country. The first internationally recognized Federal government took power in 2012 following over 20 years of transitional or no government. The Company and its partners actively engage with a range of governments and organizations, domestic and international, around how Somalia can best develop a stable Federal state including the institutions and systems it needs to properly manage its natural resources.

Additionally, Horn is reviewing new venture opportunities in the region.

RECENT DEVELOPMENTS

Commenced Trading on the TSX

On Tuesday, May 6, 2014, the Company's common shares commenced trading on the TSX. The common shares were concurrently delisted from the TSX Venture Exchange. The Company's trading symbol and CUSIP remain the same. The Company's common shares also currently trade on the NASDAQ OMX First North and, as with the graduation to the TSX, the Company intends to apply for a graduation to the NASDAQ OMX Stockholm main board.